A better start: board diversity matters in assessing stock price crash risk
ISSN: 1472-0701
Article publication date: 4 September 2023
Issue publication date: 16 February 2024
Abstract
Purpose
The determinants that contribute to reducing stock price crash risk have garnered attention from scholars and practitioners. However, our understanding of the relationship between board diversity and stock crash risk, as well as the contextual factors that influence this relationship, remains limited. To address this gap, this study aims to investigate how different attributes of board diversity affect stock price crash risk, particularly under conditions of higher performance hazard and ownership concentration.
Design/methodology/approach
Using a two-stage least squares fixed-effects estimator, the authors analyze a panel data set of 1,792 firm-year observations across 282 firms listed on the KOSPI200 from 2010 to 2019.
Findings
Relation-oriented diversity reduces future stock price crash risk, particularly when firms experience performance shortfalls and have concentrated ownership structures, but task-oriented diversity has no significant effects. The results imply that only relation-oriented diversity strengthens governance mechanisms by curtailing managerial bad news withholding behaviors, and the role of relation-oriented diversity in reducing stock crash risk becomes more crucial when firms have higher performance hazard and concentrated ownership.
Originality/value
This study makes crucial contributions as follows: the authors contribute to the stock crash risk literature by shifting the focus from how to when board diversity matters in assessing stock crash risk; the authors extend the board diversity research and enhance scholarly understanding of the effects of board diversity on corporate governance by highlighting that not all aspects of board diversity improve firm governance mechanisms; and the authors widen the lens from a single attribute to multiple attributes of diversity to reveal the effects of diversity on boards in assessing future crash risk.
Keywords
Acknowledgements
This work was supported by the Ministry of Education of the Republic of Korea and the National Research Foundation of Korea (NRF-2021S1A5B5A17057157), the National Natural Science Foundation of China (No. 72104104), and Natural Science Foundation of Jiangsu Province (No. BK20200339).
Availability of data and materials: The quantitative datasets are available on reasonable request.
Competing interests: The authors declare that we have no competing interests.
Funding: This work was supported by the Ministry of Education of the Republic of Korea and the National Research Foundation of Korea (NRF-2021S1A5B5A17057157), the National Natural Science Foundation of China (No. 72104104), and Natural Science Foundation of Jiangsu Province (No. BK20200339).
Authors’ contributions: The authors equally contribute to the current study in terms of theorizing and quantitative analysis.
Citation
Cho, K., Cho, J. and Bian, Y. (2024), "A better start: board diversity matters in assessing stock price crash risk", Corporate Governance, Vol. 24 No. 2, pp. 365-389. https://doi.org/10.1108/CG-11-2022-0460
Publisher
:Emerald Publishing Limited
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